Treasury mulls allowing public to withdraw early from study funds

Tel Aviv Stock Exchange Photo: Eyal Izhar

Opponents of the measure fear that it will have a negative impact on Israel's capital market.

The Ministry of Finance Budget Department is looking for creative solutions, regarded as very questionable by outside parties, in response to the growing need among thousands of Israelis for cash after losing their source of income because of the coronavirus. Complaints say that the state assistance package in Israel is far too small.

One solution is likely to be allowing people to withdraw early from their advanced study funds without paying a penalty. The Ministry of Finance declined to respond to a question from "Globes" on the matter.

Criticism of the government for not allocating sufficient resources to aid the economy and those especially affected by the crisis has grown in recent days. It is asserted that not providing adequate assistance is liable to hamper economic recovery when the crisis is over. Many also blame the government's budgetary management and the lack of a new and relevant budget.

Sources inform "Globes" that the Budget Department is considering allowing withdrawal of money from the study funds even less than six years before the first deposit in the fund. Support for this measure, however, is not unanimous, and is arousing concern that even if it takes place, it will result in an enormous wave of selling on the stock market, thereby pushing down share prices and aggravating this aspect of the crisis.

The study funds are a medium-term saving instrument eligible for significant tax benefits. As of now, withdrawing money from the funds before the end of the above-mentioned period, without paying the unpaid taxes and incurring the loss of a large proportion of what has been accumulated, is allowed only in certain cases. The Budget Department periodically targets the tax benefits for the study funds as a target for cuts and streamlining.

On the other hand, the party responsible for regulating the study funds is the Capital Market, Insurance and Savings Authority, which is certainly aware of the difficulties that will arise if the idea being considered by the Budget Division is carried out. In addition to relieving the need for cash, it is liable to be a drag on the capital market.

As of the end of February, the study funds managed over NIS 247 billion in assets, making it the largest savings instrument in the savings market (the pension and executive insurance markets are even larger). In addition to the immediate cash that withdrawals from the funds will provide, there is a great potential for sales of securities in a capital market already subject to very negative sentiment.

This likely result is part of the reason for criticism of the measure under consideration. This measure is perceived as an attempt by the Budget Department to find solutions that will not require what it regards as excessive increases in government spending that will increase the ratio of debt to GDP, even though it is clear that this should be done. As far as is known, the Governor of the Bank of Israel also made it clear in internal conversations that spending on the fiscal side should be increased in order to help a broad and large group of people and the entire economy get through the crisis as soon as possible.

Tel Aviv Stock Exchange (TASE) CEO Ittai Ben-Zeev told investment counselors and investors in a conference call with senior executives in public companies today, "When we see what has been happening in the markets in Israel and the world in the past two or three weeks, we should remember the saying 'Wake up and smell the coffee.' I see what other countries are doing and what we're doing here. When we got into the crisis, the country was in a relatively good position, while what we're willing to contribute is less than all the other countries, and I don't understand it."

Ben-Zeev, who manages the TASE and made it a commercial company listed on the TASE itself, and whose shares are also held by foreign investment funds, added, "It is obvious that the coronavirus won't be here in two or three years, and that the world will recover.

"It is clear, however, that in acting to shut down the economy, the cost of restarting the economy will be much higher than any amount injected into the economy now. The government should therefore form a plan as soon as possible that will put tens of billions of shekels into the economy, and provide a response to everything that we're seeing with unemployment, for example. It's obvious that the number of half a million will grow, and that some of them won't return to the labor force."

The matter was also raised with sources from the market, headed by Israel Hotel Association president Amir Hayek and Israel Association of Travel Agents and Consultants deputy chairman Ronen Carasso, who called on the Ministry of Finance "to make it possible to immediately and cautiously release money from the study funds to helpless workers."

Published by Globes, Israel business news - en.globes.co.il - on March 24, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Tel Aviv Stock Exchange Photo: Eyal Izhar
Tel Aviv Stock Exchange Photo: Eyal Izhar
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018